It was Winston Churchill who said he would like to see "finance less proud and industry more content", but it would be a good slogan for George Osborne's public stance since he arrived in No 11.

With his enterprise zones, national insurance cuts for new small firms taking on staff, and local enterprise partnerships, the chancellor says he hopes to stimulate long-neglected manufacturers to become the leaders of what he has called the "march of the makers", rebuilding the shattered British economy.

There are few signs yet that these efforts are bearing fruit. But the other part of the much-needed "rebalancing" – taming the City – was always going to be even tougher. Tomorrow's Vickers commission report, and the government's response, will show whether Osborne is serious.

Judging by their interim report – which the chancellor has already endorsed – Sir John Vickers and his estimable colleagues have taken the firmest line they thought they could succeed with politically. Instead of a full-blown separation between risky investment banking and the kind of high street banking we all rely on, they are calling for a legal and financial ringfence. Deposits from savers would only be used for lending out to customers, not for chancy bets on collateralised debt obligations or sub-prime loans; and the banks' high-rolling casino operations – as Vince Cable used to call them – would have to rely on other sources of funding.

It sounds great: but as former chancellor Lord Lawson memorably pointed out when the proposals were launched, it depends how watertight your ringfence is. Would the same top management team be able to run both a cautious, old-fashioned high street bank and a thrusting City operation, without the two cultures bleeding into each other?

And how about public sentiment? If Barclays boss Bob Diamond went to No 11 and said "Barclays Capital is bust", would Osborne or his successor be able to say "fine, let it go" without the fear that thousands of customers would be queuing up outside Barclays' high street branches within hours to get their savings out?

Sir Mervyn King has made it pretty clear that he'd prefer a more radical solution, along the lines of what Larry Kotlikoff, author of a radical book on the financial system, Jimmy Stewart is Dead, calls "limited purpose banking". As King put it at a Treasury select committee hearing in 2009: "I would like to see a world in which there were more, probably smaller, banks which specialise in different activities." But even Vickers's proposals, while seen as being at the modest end of the spectrum when they were published, have faced concerted and well-funded opposition from the bankers, who have been in and out of Downing Street with alarming regularity in recent weeks.

They warn that Britain's banking sector will be hit hard; but unfortunately, that's inevitable – and desirable. As the IMF's managing director Christine Lagarde pointed out on Friday, our banks' assets are worth five times Britain's GDP.

As a sector, that's just too big, partly because we just can't afford to bail it out, and partly because there's plenty of economic research to show that an overlarge and overmighty financial sector actually perverts a country's economic model.

Rapid credit growth, fuelled by the "financial innovation" on which the UK used to pride itself, brings overindebted consumers, overpriced assets – including houses – and, as we discovered, extreme vulnerability.

Yet the Conservatives appear to be prepared to delay the implementation of the Vickers reforms – which already fall short of what King and others demanded – until 2015.

The commitment to take on the money men always sounded less than convincing coming from Osborne and Cameron's lips. Cameron's father was an old-school City stockbroker; Osborne's mates famously include financier Nat Rothschild.

If the terminally unflashy Gordon Brown could fall fatally for the charm of Sir Fred Goodwin and his oily ilk, today's Tory front bench seem hopelessly ill-equipped to resist.

Yet that makes it all the more important that they send a clear signal about who's running the economy. Churchill failed his own test, caving into the demands of the bankers and returning Britain to the gold standard at the pre-war rate – locking exporters into an overvalued exchange rate and devastating industry. Osborne must live up to his own rhetoric: it's time to make finance less proud.